Biomass start-ups secure capital as VCs back innovative technologies

October 17, 2024 (Preqin News) – Two hundred years ago, biomass was the largest source of energy consumption in the US. Today, a steady stream of capital is being invested in biomass start-ups as venture capitalists back innovative technologies to increase the renewable fuel’s contribution to energy transition.

Preqin data shows that biomass companies have attracted $712.0mn in 44 venture capital rounds this year to date, putting the sector on course for a small increase over the $747.6mn raised across 55 investments last year. With 95% of last year’s deal value deployed so far this year, biomass investment has held up better than the broader venture capital market, where current aggregate deal value of $372.0bn is 75% of the $497.2bn recorded in 2023.

North America leads the way, with $295.5mn raised, but is closely followed by Europe ($280.6mn), with Asia further behind in deal value ($107.6mn).

Over the past five years, US-based Breakthrough Energy Ventures, which has $3.5bn in AUM, has been the most active investor in biomass startups with eight rounds, followed by the UK’s AP Ventures with seven investments, and the Netherlands’s EIT Innoenergy, Germany’s High-Tech Gründerfonds, and Extantia with six deals each.

The interest in converting organic waste to energy has also been reflected in fundraising. Preqin currently tracks 172 funds with an aggregate $93.3bn in capital raised closed to date with exposure to the biomass sector. Currently, 25 funds with exposure to biomass are in market, seeking a total of $16.7bn. This year, infrastructure firm USA BioEnergy has announced the Arkansas Opportunity Zone Fund with a $5bn target, the largest fund investing in biomass.

Biomass – such as wood chips, crops, and food waste – can be converted into renewable energy that produces heat and electricity. It can also be used for cooking and powering vehicles. Biomass accounted for about 5% of total primary energy consumption in 2023 in the US, according to the US Energy Information Administration.

Although fossil fuels continue to dominate the global energy supply, with an 80% share of primary energy supply, renewables accounted for 15% of the total in 2021, according to the 2023 Global Bioenenergy Statistics Report from the World Bioenergy Association. Renewables account for 29% of global electricity production, driven by hydro (58%), wind (21%), and solar power (11%), with significant contributions from biomass (9%).

New technologies have the potential to increase biomass energy supply and improve efficiency. Biomass plants equipped with modern boilers ensure cleaner burning than the older technology and reduce CO2. Digital platforms can improve decision-making by collecting data on the environmental footprint of converting waste into bioenergy. Portable systems that can be latched onto the back of vehicles densify residues on-site into products such as biochar-based soil amendments for agricultural applications, fertilizers, and biofuels without requiring external energy input.

‘Biomass is by no means a new technology,’ said Alex Murray, VP and Head of Real Assets, Research Insights at Preqin. ‘However, the continued interest of VC funds in developing the technology further shows there is still space for innovation. As with many renewable technologies, early government incentives have helped the technology develop and become more competitive.’

_{The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.}